Driven Brands Holdings Inc. [DRVN] Filings

10-Q 1 drvn-20240629.htm 10-Q drvn-20240629

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-39898

Driven Brands Holdings Inc.

(Exact name of Registrant as specified in its charter)


Delaware
(State or other jurisdiction of incorporation or organization)


47-3595252
(I.R.S. Employer Identification No.)


440 South Church Street, Suite 700
Charlotte, North Carolina
(Address of principal executive offices)


28202
(Zip Code)

Registrant’s telephone number, including area code: (704) 377-8855


Title of each class
Common Stock, $0.01 par value


Trading Symbol
DRVN


Name of each exchange on which registered
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒
Non-accelerated filer ☐


Accelerated filer ☐
Small reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 5, 2024, the Registrant had 164,081,878 shares of Common Stock outstanding.

Driven Brands Holdings Inc.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Consolidated Statements of Shareholders’ Equity			6
Consolidated Statements of Cash Flows			8
Notes to the Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			45

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults Upon Senior Securities			46
Item 5. Other Information			46
Item 6. Exhibits			47

Signatures			48

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, trends, plans, objectives of management, impact of accounting standards and guidance, impairments, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook, and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; (iv) the risks and costs associated with the integration of, and or ability to integrate, our stores and business units successfully; (v) the proper application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments; and (vi) the competitive environment in which we operate. Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy, and other future conditions, and involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended				Six Months Ended
(in thousands, except per share amounts)	June 29, 2024		July 1, 2023			June 29, 2024		July 01, 2023
Net revenue:
Franchise royalties and fees	$	50,029	$	49,805		$	95,074	$	93,320
Company-operated store sales	394,681		394,578			769,137		770,644
Independently-operated store sales	60,280		61,533			113,327		114,065
Advertising contributions	24,911		24,749			48,981		46,426
Supply and other revenue	81,665		76,186			157,273		144,863
Total net revenue	611,566		606,851			1,183,792		1,169,318
Operating Expenses:
Company-operated store expenses	254,174		257,040			496,227		500,449
Independently-operated store expenses	31,956		31,958			61,311		61,322
Advertising expenses	24,911		24,749			48,981		46,426
Supply and other expenses	40,554		42,106			76,770		79,372
Selling, general, and administrative expenses	121,123		96,815			237,525		209,143
Acquisition related costs	271		3,750			2,065		5,597
Store opening costs	940		1,377			2,203		2,402
Depreciation and amortization	44,633		45,419			87,862		83,617


Asset impairment charges and lease terminations	12,497		6,044			31,823		6,211
Total operating expenses	531,059		509,258			1,044,767		994,539
Operating income	80,507		97,593			139,025		174,779
Other expenses, net:
Interest expense, net	31,796		40,871			75,568		79,012
Foreign currency transaction loss (gain), net	681		(1,302)			5,002		(2,977)

Other expense, net	32,477		39,569			80,570		76,035
Income before taxes	48,030		58,024			58,455		98,744
Income tax expense	17,871		20,275			24,035		31,246
Net income	$	30,159	$	37,749		$	34,420	$	67,498



Earnings per share:
Basic	$	0.18	$	0.23		$	0.21	$	0.41
Diluted	$	0.18	$	0.22		$	0.21	$	0.40
Weighted average shares outstanding
Basic	159,795		162,911			159,713		162,848
Diluted	160,765		166,888			160,683		166,882

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three Months Ended				Six Months Ended
(in thousands)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Net income	$	30,159	$	37,749	$	34,420	$	67,498
Other comprehensive income:
Foreign currency translation adjustments	(2,676)		6,165		(18,583)		17,516
Unrealized (loss) gain from cash flow hedges, net of tax expense (benefit) of $7, ($19), $22, ($21), respectively	(865)		222		(1,482)		22
Actuarial (loss) gain of defined pension plan, net of tax expense of $0	(2)		(4)		(10)		12
Other comprehensive (loss) income, net	(3,543)		6,383		(20,075)		17,550
Total comprehensive income	26,616		44,132		14,345		85,048
Comprehensive income attributable to non-controlling interests	—		14		—		13
Comprehensive income attributable to Driven Brands Holdings Inc.	$	26,616	$	44,118	$	14,345	$	85,035

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)


(in thousands, except share and per share amounts)	June 29, 2024		December 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	148,814	$	176,522
Restricted cash	4,414		657
Accounts and notes receivable, net	195,327		151,259
Inventory	70,527		83,171
Prepaid and other assets	44,426		46,714
Income tax receivable	13,893		15,928
Assets held for sale	237,183		301,229
Advertising fund assets, restricted	43,039		45,627
Total current assets	757,623		821,107
Other assets	103,746		56,565
Property and equipment, net	1,422,961		1,438,496
Operating lease right-of-use assets	1,378,264		1,389,316
Deferred commissions	6,740		6,312
Intangibles, net	721,691		739,402
Goodwill	1,431,555		1,455,946
Deferred tax assets	3,627		3,660
Total assets	$	5,826,207	$	5,910,804
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	72,118	$	67,526
Accrued expenses and other liabilities	236,586		242,171
Income tax payable	2,053		5,404
Current portion of long-term debt	33,332		32,673
Income tax receivable liability	—		56,001

Advertising fund liabilities	15,115		23,392
Total current liabilities	359,204		427,167
Long-term debt	2,855,823		2,910,812
Deferred tax liabilities	157,271		154,742
Operating lease liabilities	1,317,342		1,332,519
Income tax receivable liability	133,623		117,915
Deferred revenue	31,472		30,507
Long-term accrued expenses and other liabilities	28,682		30,419
Total liabilities	4,883,417		5,004,081
Commitments and contingencies (Note 12)
Preferred Stock $0.01 par value; 100,000,000 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value, 900,000,000 shares authorized: and 164,082,430 and 163,965,231 shares outstanding; respectively	1,641		1,640
Additional paid-in capital	1,674,766		1,652,401
Accumulated deficit	(675,667)		(710,087)
Accumulated other comprehensive loss	(57,950)		(37,875)
Total shareholders’ equity attributable to Driven Brands Holdings Inc.	942,790		906,079
Non-controlling interests	—		644
Total shareholders' equity	942,790		906,723
Total liabilities and shareholders' equity	$	5,826,207	$	5,910,804

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)


	Three Months Ended
	June 29, 2024			July 1, 2023
(in thousands, except share amounts)	Shares	Amount		Shares	Amount
Preferred stock, $0.01 par value per share	—	$	—	—	$	—
Common stock, $0.01 par value per share
Balance at beginning of period	164,079,581	$	1,641	167,560,449	$	1,675

Shares issued for exercise/vesting of share-based compensation awards	2,849	—		48,259	1

Forfeiture of restricted stock awards	—	—		(242,147)	(2)
Balance at end of period	164,082,430	$	1,641	167,366,561	$	1,674
Additional paid-in capital
Balance at beginning of period		$	1,664,764		$	1,633,460
Share-based compensation expense		10,982			4,485



Tax obligations for share-based compensation		(980)			—
Balance at end of period		$	1,674,766		$	1,637,945
(Accumulated deficit) retained earnings
Balance at beginning of period		$	(705,826)		$	114,544

Net income		30,159			37,749
Balance at end of period		$	(675,667)		$	152,293
Accumulated other comprehensive loss
Balance at beginning of period		$	(54,407)		$	(51,267)
Other comprehensive (loss) income		(3,543)			6,369
Balance at end of period		$	(57,950)		$	(44,898)
Non-controlling interests
Balance at beginning of period		$	644		$	630

Other comprehensive income		—			14


Acquisition of non-controlling interest		(644)			—
Balance at end of period		$	—		$	644

Total shareholders’ equity		$	942,790		$	1,747,658

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)


	Six Months Ended
	June 29, 2024			July 1, 2023
(in thousands, except share amounts)	Shares	Amount		Shares	Amount
Preferred stock, $0.01 par value per share	—	$	—	—	$	—
Common stock, $0.01 par value per share
Balance at beginning of period	163,965,231	$	1,640	167,404,047	$	1,674
Stock issued relating to Employee Stock Purchase Plan	43,764	—		26,358	—
Shares issued for exercise/vesting of share-based compensation awards	173,021	2		178,303	2

Forfeiture of restricted stock awards	(99,586)	(1)		(242,147)	(2)


Balance at end of period	164,082,430	$	1,641	167,366,561	$	1,674
Additional paid-in capital
Balance at beginning of period		$	1,652,401		$	1,628,904
Share-based compensation expense		22,843			7,049
Exercise of stock options		—			1,500
Stock issued relating to Employee Stock Purchase Plan		502			612




Tax obligations for share-based compensation		(980)			(120)
Balance at end of period		$	1,674,766		$	1,637,945
(Accumulated deficit) retained earnings
Balance at beginning of period		$	(710,087)		$	84,795
Net Income		34,420			67,498

Balance at end of period		$	(675,667)		$	152,293
Accumulated other comprehensive loss
Balance at beginning of period		$	(37,875)		$	(62,435)
Other comprehensive (loss) income		(20,075)			17,537
Balance at end of period		$	(57,950)		$	(44,898)
Non-controlling interests
Balance at beginning of period		$	644		$	631

Other comprehensive income		—			13


Acquisition of non-controlling interest		(644)			—
Balance at end of period		$	—		$	644

Total shareholders’ equity		$	942,790		$	1,747,658

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended
(in thousands)	June 29, 2024		July 1, 2023
Net income	$	34,420	$	67,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	87,862		83,617



Share-based compensation expense	22,843		7,049
Loss (gain) on foreign denominated transactions	9,923		(1,723)
Gain on foreign currency derivatives	(4,921)		(1,254)
Gain on sale and disposal of businesses, fixed assets, and sale leaseback transactions	(16,359)		(12,230)
Reclassification of interest rate hedge to income	(1,044)		(1,039)
Bad debt expense	1,738		602
Asset impairment charges and lease terminations	31,823		6,211
Amortization of deferred financing costs and bond discounts	4,933		4,343
Amortization of cloud computing	2,414		—
Provision for deferred income taxes	5,036		18,812

Other, net	7,322		9,641
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net	(47,245)		(30,373)
Inventory	11,310		(11,108)
Prepaid and other assets	7,986		(7,894)
Advertising fund assets and liabilities, restricted	(12,220)		(8,768)
Other assets	(47,699)		(25,456)
Deferred commissions	(428)		330
Deferred revenue	971		1,585
Accounts payable	3,968		16,231
Accrued expenses and other liabilities	8,022		(1,171)
Income tax receivable	(3,431)		(320)

Cash provided by operating activities	107,224		114,583
Cash flows from investing activities:
Capital expenditures	(155,920)		(320,071)
Cash used in business acquisitions, net of cash acquired	(2,759)		(44,868)
Proceeds from sale leaseback transactions	11,808		143,622


Proceeds from sale or disposal of businesses and fixed assets	112,845		217
Cash used in investing activities	(34,026)		(221,100)
Cash flows from financing activities:

Payment of debt extinguishment and issuance costs	(871)		—

Repayment of long-term debt	(34,005)		(13,961)
Proceeds from revolving lines of credit and short-term debt	46,000		230,000
Repayment of revolving lines of credit and short-term debt	(71,000)		(120,000)
Repayment of principal portion of finance lease liability	(2,199)		(1,889)

Payment of Tax Receivable Agreement	(38,362)		—
Acquisition of non-controlling interest	(644)		—

Purchase of common stock	(2)		(716)


Tax obligations for share-based compensation	(980)		—
Stock option exercises	—		1,758
Other, net	—		(64)
Cash (used in) provided by financing activities	(102,063)		95,128
Effect of exchange rate changes on cash	(1,615)		2,087
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted	(30,480)		(9,302)
Cash and cash equivalents, beginning of period	176,522		227,110


Cash included in advertising fund assets, restricted, beginning of period	38,537		32,871
Restricted cash, beginning of period	657		792
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period	215,716		260,773
Cash and cash equivalents, end of period	148,814		212,123
Cash included in advertising fund assets, restricted, end of period	32,008		38,691
Restricted cash, end of period	4,414		657
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period	$	185,236	$	251,471


Supplemental cash flow disclosures - non-cash items:
Capital expenditures included in accrued expenses and other liabilities	$	17,891	$	43,191
Deferred consideration included in accrued expenses and other liabilities	1,948		16,129

Supplemental cash flow disclosures - cash paid for:
Interest	$	72,561	$	78,955
Income taxes	20,338		13,614

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1—Description of Business

Description of Business

Driven Brands Holdings Inc. together with its subsidiaries (collectively, the “Company”) is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 5,000 franchised, independently-operated, and company-operated locations across 49 U.S. states and 13 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Take 5 Car Wash®, Meineke Car Care Centers®, MAACO®, CARSTAR®, Auto Glass Now®, and 1-800-Radiator & A/C® that compete in the automotive services industry.

Tax Receivable Agreement

The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into a Tax Receivable Agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local, and provincial income tax that the Company will actually realize or divests. The Tax Receivable Agreement was effective as of the date of the Company’s IPO. The Company recorded a current tax receivable liability of $56 million as of December 30, 2023 and a non-current tax receivable liability of $134 million and $118 million as of June 29, 2024 and December 30, 2023, respectively, on the consolidated balance sheets. We made payments of approximately $38 million under the Tax Receivable Agreement in 2024 and no additional payments are planned within the next 12 months.

Note 2— Summary of Significant Accounting Policies

Fiscal Year

The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and six months ended June 29, 2024 and July 1, 2023 each consisted of 13 weeks and 26 weeks, respectively. The Car Wash segment is consolidated based on a calendar month end.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, the unaudited interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of operations, balance sheet, cash flows, and shareholders’/members’ equity for the interim periods presented. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 30, 2023. Certain information and note disclosures normally included in the unaudited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended June 29, 2024 may not be indicative of the results to be expected for any other interim period or the year ending December 28, 2024.

The six months ended June 29, 2024 includes an adjustment to the unaudited consolidated balance sheet and consolidated statement of operations that originated in the prior year. The adjustment decreased both current assets and selling, general, and administrative expenses by $3.7 million. The Company evaluated the materiality of the adjustment on prior period financial statements, recorded the adjustment in the current period, and concluded the effect of the adjustment was immaterial to both the current and prior financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the related notes to the consolidated financial

statements. Significant items that are subject to estimates and assumptions include, but are not limited to, valuation of intangible assets and goodwill; income taxes; allowances for credit losses; valuation of derivatives; self-insurance claims; and share-based compensation. Management evaluates its estimates on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on historical experience, current conditions, and various other additional information, may affect amounts reported in future periods. Actual results could differ due to uncertainty inherent in the nature of these estimates.

Fair Value of Financial Instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

Level 3: Unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Financial assets and liabilities measured at fair value on a recurring basis as of June 29, 2024 and December 30, 2023 are summarized as follows:


Items Measured at Fair Value at June 29, 2024
(in thousands)	Level 1		Level 2		Total
Derivative assets, recorded in other assets	$	—	$	2,562	$	2,562
Derivative liabilities, recorded in accrued expenses and other liabilities	—		150		150


Items Measured at Fair Value at December 30, 2023
(in thousands)	Level 1		Level 2		Total
Derivative assets, recorded in other assets	$	—	$	285	$	285
Derivative liabilities, recorded in accrued expenses and other liabilities	—		493		493

The carrying value and estimated fair value of total long-term debt were as follows:


	June 29, 2024				December 30, 2023
(in thousands)	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Long-term debt	$	2,919,641	$	2,781,613	$	2,977,996	$	2,800,011

Recently Issued Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. The standard enhances segment disclosure requirements of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) to assist in understanding how segment expenses and operating results are evaluated. The new standard does not change the definition or aggregation of operating segments. The standard also expands the interim disclosure requirements on a retrospective basis. This ASU is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU improves the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the tax rate

reconciliation as well as disaggregation of income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

Note 3—Acquisitions and Divestitures

The Company strategically acquires companies and assets to increase its footprint and offer products and services that diversify its existing offerings, primarily through asset purchase agreements. These acquisitions are accounted for as business combinations using the acquisition method, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their fair values as of the date of the acquisition with the remaining amount recorded in goodwill.

2024 Acquisitions

The Company completed one acquisition within the Maintenance segment and one acquisition in the international car wash business within the Car Wash segment during the six months ended June 29, 2024, representing two sites and one site, respectively, for an aggregate cash consideration, net of cash acquired and liabilities assumed, of less than $2 million.

2023 Acquisitions

The Company completed three acquisitions within the Maintenance segment during the six months ended July 1, 2023, representing three sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $6 million.

The Company completed two acquisitions within the Car Wash segment during the six months ended July 1, 2023, representing three sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $15 million.

The Company completed two acquisitions in the Paint, Collision & Glass segment during the six months ended July 1, 2023, representing two sites. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $6 million.

The Company estimated the fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The provisional amounts for assets acquired and liabilities assumed for the 2023 acquisitions are as follows:

2023 Maintenance Segment


(in thousands)	Maintenance
Assets:
Operating lease right-of-use assets	$	658
Property and equipment, net	3,705
Assets acquired	4,363
Liabilities:
Accrued expenses and other liabilities	20
Operating lease liabilities	641
Total liabilities assumed	661
Cash consideration, net of cash acquired	5,862
Deferred consideration	285
Total consideration, net of cash acquired	$	6,147
Goodwill	$	2,445

2023 Car Wash Segment


(in thousands)	Car Wash
Assets:

Property and equipment, net	$	11,052

Assets acquired	11,052






Total consideration, net of cash acquired	$	15,000
Goodwill	$	3,948

2023 Paint, Collision & Glass Segment


(in thousands)	Paint, Collision & Glass
Assets:
Inventory	$	35
Property and equipment, net	667
Assets acquired	702
Cash consideration, net of cash acquired	4,947
Deferred consideration	695
Total Consideration, net of cash acquired	$	5,642
Goodwill	$	4,940

Goodwill represents the excess of the consideration paid over the fair value of net assets acquired and includes the expected benefit of synergies within the existing segments and intangible assets that do not qualify for separate recognition. Goodwill, which was allocated to the Maintenance, Car Wash, and Paint, Collision & Glass segments, is substantially all deductible for income tax purposes.

Deferred Consideration and Transaction Costs

Deferred consideration is typically paid six months to one-year after the acquisition closing date once all conditions under the purchase agreement have been satisfied. The Company had $2 million and $16 million of deferred consideration related to acquisitions as of June 29, 2024 and July 1, 2023, respectively. The Company paid $2 million and $20 million of deferred consideration related to prior acquisitions during the six months ended June 29, 2024 and July 1, 2023, respectively. Deferred consideration is recorded within investing activities at the time of payment.

The Company incurred less than $1 million of transaction costs during each of the three and six months ended June 29, 2024 and July 1, 2023.

Divestitures

During the six months ended June 29, 2024, the Company sold nine company-operated stores within the Paint, Collision, & Glass segment to a franchisee at a purchase price of $18 million. The Company sold certain store assets as well as allocated $9 million of Paint, Collision & Glass goodwill based on the fair value of the segment at the time of sale, resulting in a gain of $6 million on the sale of businesses within selling, general, and administrative expenses on the unaudited consolidated statement of operations during the six months ended June 29, 2024.

Note 4— Revenue from Contracts with Customers

The Company records contract assets for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year and if such costs are material. Commission expenses, a primary cost associated with the sale of franchise licenses, are amortized to selling, general, and administrative expenses in the unaudited consolidated statements of operations ratably over the life of the associated franchise agreement.

Capitalized costs to obtain a contract as of June 29, 2024 and December 30, 2023 were $7 million and $6 million, respectively, and are presented within deferred commissions on the consolidated balance sheets. The Company recognized less than $1 million of costs during the three and six months ended months ended June 29, 2024 and July 1, 2023, respectively, that were recorded as a contract asset at the beginning of the periods.

Contract liabilities consist primarily of deferred franchise fees and deferred development fees. The Company had contract liabilities of $31 million as of June 29, 2024 and December 30, 2023, which are presented within deferred revenue on the consolidated balance sheets. The Company recognized less than $1 million and $1 million of revenue relating to contract liabilities during the three months ended June 29, 2024 and July 1, 2023, respectively. The Company recognized $1 million and $2 million of revenue relating to contract liabilities during the six months ended June 29, 2024 and July 1, 2023, respectively.

Note 5—Segment Information

The Company’s worldwide operations are comprised of the following reportable segments: Maintenance, Car Wash, Paint, Collision & Glass, and Platform Services.

In addition to the reportable segments, the Company’s consolidated financial results include “Corporate and Other” activity. Corporate and Other incurs costs related to the advertising revenues and expenses and shared service costs, which are related to finance, IT, human resources, legal, supply chain, and other support services. Corporate and Other activity includes the adjustments necessary to eliminate certain intercompany transactions, namely sales by the Platform Services segment to the Paint, Collision & Glass and Maintenance segments.

Segment results for the three and six months ended June 29, 2024 and July 1, 2023 are as follows:


	Three Months Ended June 29, 2024
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	16,764	$	—	$	24,475	$	8,790	$	—	$	50,029
Company-operated store sales	230,809		95,211		67,523		1,138		—		394,681
Independently-operated store sales	—		60,280		—		—		—		60,280
Advertising fund contributions	—		—		—		—		24,911		24,911
Supply and other revenue	30,350		1,412		20,027		51,314		(21,438)		81,665
Total revenue	$	277,923	$	156,903	$	112,025	$	61,242	$	3,473	$	611,566
Segment Adjusted EBITDA	$	102,935	$	33,772	$	35,172	$	25,311	$	(44,032)	$	153,158


	Three Months Ended July 1, 2023
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	14,215	$	—	$	26,530	$	9,060	$	—	$	49,805
Company-operated store sales	205,673		101,615		86,110		1,180		—		394,578
Independently-operated store sales	—		61,533		—		—		—		61,533
Advertising fund contributions	—		—		—		—		24,749		24,749
Supply and other revenue	22,439		1,607		20,518		47,098		(15,476)		76,186
Total revenue	$	242,327	$	164,755	$	133,158	$	57,338	$	9,273	$	606,851
Segment Adjusted EBITDA	$	84,812	$	39,761	$	41,057	$	22,519	$	(40,402)	$	147,747


	Six Months Ended June 29, 2024
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	31,218	$	—	$	49,107	$	14,749	$	—	$	95,074
Company-operated store sales	451,680		185,438		130,032		1,987		—		769,137
Independently-operated store sales	—		113,327		—		—		—		113,327
Advertising fund contributions	—		—		—		—		48,981		48,981
Supply and other revenue	56,738		2,860		39,274		98,331		(39,930)		157,273
Total net revenue	$	539,636	$	301,625	$	218,413	$	115,067	$	9,051	$	1,183,792
Segment Adjusted EBITDA	$	194,371	$	62,906	$	65,992	$	45,182	$	(83,012)	$	285,439


	Six Months Ended July 1, 2023
(in thousands)	Maintenance		Car Wash		Paint, Collision & Glass		Platform Services		Corporate and Other		Total
Franchise royalties and fees	$	26,658	$	—	$	50,828	$	15,834	$	—	$	93,320
Company-operated store sales	400,933		204,061		163,589		2,061		—		770,644
Independently-operated store sales	—		114,065		—		—		—		114,065
Advertising fund contributions	—		—		—		—		46,426		46,426
Supply and other revenue	42,404		3,609		39,544		91,476		(32,170)		144,863
Total net revenue	$	469,995	$	321,735	$	253,961	$	109,371	$	14,256	$	1,169,318
Segment Adjusted EBITDA	$	157,045	$	80,809	$	76,507	$	39,527	$	(81,653)	$272,235

The reconciliations of Income before taxes to Segment Adjusted EBITDA for the three and six months ended June 29, 2024 and July 1, 2023 are as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Income before taxes	$	48,030	$	58,024	$	58,455	$	98,744
Depreciation and amortization	44,633		45,419		87,862		83,617
Interest expense, net	31,796		40,871		75,568		79,012
Acquisition related costs(a)	271		3,750		2,065		5,597
Non-core items and project costs, net(b)	5,126		2,803		9,837		4,627
Store opening costs	940		1,377		2,203		2,402


Cloud computing amortization(c)	1,069		—		2,414		—
Share-based compensation expense(d)	10,982		4,485		22,843		7,049
Foreign currency transaction loss (gain), net(e)	681		(1,302)		5,002		(2,977)



Asset sale leaseback (gain) loss, impairment and closed store expenses(f)	9,630		(7,680)		19,190		(5,836)

Segment Adjusted EBITDA	$	153,158	$	147,747	$	285,439	$	272,235

(a) Consists of acquisition costs as reflected within the unaudited consolidated statements of operations, including legal, consulting and other fees, and expenses incurred in connection with acquisitions completed during the applicable period, as well as inventory rationalization expenses incurred in connection with acquisitions. We expect to incur similar costs in connection with other acquisitions in the future and, under GAAP, such costs relating to acquisitions are expensed as incurred.

(b) Consists of discrete items and project costs, including third party consulting and professional fees associated with strategic transformation initiatives as well as non-recurring payroll-related costs.

(d) Represents non-cash share-based compensation expense.

(e) Represents foreign currency transaction (gains) losses, net that primarily related to the remeasurement of our intercompany loans as well as gains and losses on cross currency swaps and forward contracts.

(f) Relates to (gains) losses, net on sale leasebacks, impairment of certain fixed assets and operating lease right-of-use assets related to closed and underperforming locations, assets held for sale, and lease exit costs and other costs associated with stores that were closed prior to the respective lease termination dates. Refer to Note 6 for additional information.

Note 6— Assets Held For Sale

U.S. Car Wash

During 2023, management performed a strategic review of the U.S. car wash operations, which included, but was not limited to, an evaluation of the following: store performance, the competitive landscape, revenue and expense optimization opportunities, and capital requirements. As a result of this strategic review, management approved the closure of 29 stores, halted the opening of new company-operated stores, and began marketing property and equipment for sale that will not be utilized by the Company. These actions resulted in the transfer of assets from property and equipment to assets held for sale during the third quarter of 2023.

The changes in assets held for sale were as follows:


(in thousands)
Balance at December 30, 2023	$	301,229
Additions	58,562
Impairments	(29,765)
Sales and disposals	(92,843)
Balance at June 29, 2024	$	237,183

During the six months ending June 29, 2024, management continued to enhance properties included within held for sale resulting in an increase to assets held for sale of $59 million. Management evaluated the fair value for all assets included within assets held for sale, which resulted in an impairment of $12 million and $30 million for the three and six months ended June 29, 2024, respectively. In addition, during the six months ended June 29, 2024, the Company sold 30 locations resulting in a net gain of $5 million and $11 million for the three and six months ended June 29, 2024, respectively. The Company will continue to evaluate the fair value of assets held for sale, which may result in additional impairments based on unfavorable market conditions or other economic factors in the future.

Note 7 — Long-Term Debt

The Company’s long-term debt obligations consist of the following:


(in thousands)	June 29, 2024		December 30, 2023
Series 2018-1 Securitization Senior Notes, Class A-2	$	257,813	$	259,188
Series 2019-1 Securitization Senior Notes, Class A-2	283,500		285,000
Series 2019-2 Securitization Senior Notes, Class A-2	261,938		263,313
Series 2020-1 Securitization Senior Notes, Class A-2	167,956		168,875
Series 2020-2 Securitization Senior Notes, Class A-2	434,250		436,500
Series 2021-1 Securitization Senior Notes, Class A-2	437,625		439,875
Series 2022-1 Securitization Senior Notes, Class A-2	358,613		360,438
Term Loan Facility	468,750		491,250
Revolving Credit Facility	223,000		248,000
Other debt (a)	26,196		25,557
Total debt	2,919,641		2,977,996

Less: unamortized debt issuance costs	(30,486)		(34,511)
Less: current portion of long-term debt	(33,332)		(32,673)
Total long-term debt, net	$	2,855,823	$	2,910,812

(a) Consists primarily of finance lease obligations.

Series 2019-3 Variable Funding Securitization Senior Notes

In December 2019, Driven Brands Funding, LLC (the “Issuer”) issued Series 2019-3 Variable Funding Senior Notes, Class A-1 (the “2019 VFN”) in the revolving amount of $115 million. The 2019 VFN have a final legal maturity date in January 2050. The commitment under the 2019 VFN was set to expire in July 2022, with the option of three one-year extensions. In July 2023, the Company exercised the second of three one-year extension options. The 2019 VFN are secured by substantially all assets of the Issuer and are guaranteed by the Issuer and each of its respective subsidiaries. As of July 1, 2023, borrowings incur interest at the Base Rate plus an applicable margin or Secured Overnight Financing Rate (“SOFR”) plus an applicable term adjustment. No amounts were outstanding under the 2019 VFN as of June 29, 2024 and no borrowings or repayments were made during the six months ended June 29, 2024. As of June 29, 2024, there were $25 million of outstanding letters of credit which reduced the borrowing availability under the 2019 VFN. In July 2024, the 2019 VFN was refinanced with the 2024 VFN described below.

2022-1 Securitization Senior Notes

In conjunction with the issuance of the 2022-1 Senior Notes, Driven Brands Funding, LLC and Driven Brands Canada Funding Corporation (together “the Co-Issuers”) also issued Series 2022-1 Class A-1 in the amount of $135 million, which can be accessed at the Co-Issuers’ option if certain conditions are met.

2024-1 Securitization Senior Notes

In July 2024, the Co-Issuers issued $275 million of 2024-1 Securitization Senior Notes (the “2024-1 Senior Notes”) bearing a fixed interest rate of 6.372% per annum. The 2024-1 Senior Notes have a final legal maturity date in October 2054 and an anticipated repayment date in October 2031. The 2024-1 Senior Notes are secured by substantially all assets of the Co-Issuers and are guaranteed by the Co-Issuers and each of their respective subsidiaries. Proceeds from the 2024-1 Senior Notes were primarily used to repay the Company’s 2018-1 Senior Notes.

Series 2024-1 Variable Funding Securitization Senior Notes

In July 2024, the Co-Issuers issued Series 2024-1 Variable Funding Senior Notes, Class A-1 (the “2024 VFN”) in the revolving amount of $400 million. The 2024 VFN have a final legal maturity date in October 2054. The commitment under the 2024 VFN is set to expire in October 2029, with the option of two one-year extensions. The 2024 VFN are secured by substantially all assets of the Co-Issuers and are guaranteed by the Co-Issuers and each of their respective subsidiaries. Borrowings incur interest at the Base Rate plus an applicable margin or SOFR plus an applicable margin. As of August 8, 2024, there were no amounts outstanding under the 2024 VFN and $26 million of outstanding letters of credit which reduced the borrowing availability under the 2024 VFN.

Driven Holdings Revolving Credit Facility

In May 2021, Driven Holdings, LLC, (the “Borrower”) a Delaware limited liability company and indirect wholly-owned subsidiary of Driven Brands Holdings Inc., entered into a credit agreement to secure a revolving line of credit with a group of financial institutions (the “Revolving Credit Facility”), which provides for an aggregate amount of up to $300 million, and has a maturity date in May 2026 (the “Credit Agreement”). On June 2, 2023, the Credit Agreement was amended pursuant to which as of July 1, 2023, borrowings will incur interest at the Base Rate plus an applicable margin or SOFR plus an applicable term adjustment. The Revolving Credit Facility also includes periodic commitment fees based on the available unused balance and a quarterly administrative fee.

There was $223 million outstanding on the Revolving Credit Facility as of June 29, 2024 with $46 million of borrowings and $71 million of repayments made during the six months ended June 29, 2024.

The Company’s debt agreements are subject to certain quantitative and qualitative covenants. As of June 29, 2024, the Company and its subsidiaries were in material compliance with such covenants.

Note 8 — Leases

During the six months ended June 29, 2024, the Company sold eight maintenance properties in various locations throughout the U.S. for a total of $11 million. During the six months ended July 1, 2023, the Company sold four maintenance and 33 car wash properties in various locations throughout the U.S. for a total of $144 million. Concurrently with the closing of these sales, the Company entered into various operating lease agreements pursuant to which the Company leased back the properties. These lease agreements each have an initial term of 18 to 20 years. The Company does not include option periods in its determination of the lease term unless renewals are deemed reasonably certain to be exercised. The Company recorded an operating lease right-of-use asset and operating lease liability of $8 million and $8 million, respectively, as of June 29, 2024, and $112 million and $112 million, respectively, as of July 1, 2023 related to these lease arrangements. The Company recorded gains of $3 million for the three and six months ended June 29, 2024, and $22 million and $25 million for the three and six months ended July 1, 2023, respectively.

Supplemental cash flow information related to the Company’s lease arrangements for the six months ended June 29, 2024 and July 1, 2023, respectively, was as follows:


	Six Months Ended
(in thousands)	June 29, 2024		July 1, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	84,415	$	67,107
Operating cash flows used in finance leases	101		810
Financing cash flows used in finance leases	197		953

Note 9 — Share-based Compensation

The Company granted new awards during the three months ended June 29, 2024, consisting of 19,207 restricted stock units (“RSUs”) and 19,214 performance stock units (“PSUs”). The Company granted new awards during the six months ended June 29, 2024 including 951,530 RSUs and 1,075,784 PSUs.

Awards are eligible to vest provided that the employee remains in continuous service on each vesting date. The RSUs vest ratably each year on the anniversary date generally over a two-or three-year period. The PSUs vest after a three-year performance period. The number of PSUs that vest is contingent on the Company achieving certain performance goals, one being a performance condition and the other being a market condition. The number of PSU shares that vest may range from 0% to 200% of the original grant, based upon the level of performance. Certain awards are considered probable of meeting vesting requirements, and therefore, the Company has started recognizing expense. For both RSUs and PSUs, if the grantee’s continuous service terminates for any reason, the grantee shall forfeit all right, title, and interest in any unvested units as of the termination date.

The fair value of the total RSUs, performance-based PSUs, and market-based PSUs granted during the three months ended June 29, 2024 were less than $1 million each. The fair value of the total RSUs, performance-based PSUs, and market-based PSUs granted during the six months ended June 29, 2024 were $13 million, $9 million, and $8 million, respectively. The Company based the fair value of the RSUs and performance-based PSUs on the Company’s stock price on the grant date.

The range of assumptions used for issued PSUs with a market condition valued using the Monte Carlo model were as follows:


	Six Months Ended
	June 29, 2024	July 1, 2023
Annual dividend yield	—%	—%
Expected term (years)	2.6 - 2.8	2.6 - 2.8
Risk-free interest rate	4.48% - 4.65%	3.65% - 4.51%
Expected volatility	49.2% - 51.1%	37.9% - 38.8%
Correlation to the index peer group	46.9% - 49.2%	60.2% - 60.3%

The Company recorded $11 million and $23 million of share-based compensation expense during the three and six months ended June 29, 2024, respectively, and $4 million and $7 million during the six months ended July 1, 2023, respectively, within selling, general, and administrative expenses on the unaudited consolidated statements of operations. The increase in share-based compensation expense primarily relates to the modification of pre-IPO awards in the fourth quarter of 2023.

Note 10—Earnings Per Share

The Company calculates basic and diluted earnings per share using the two-class method. The following table sets forth the computation of basic and diluted earnings per share attributable to common shareholders:


	Three Months Ended				Six Months Ended
(in thousands, except per share amounts)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Basic earnings per share:
Net income	$	30,159	$	37,749	$	34,420	$	67,498
Less: Net income attributable to participating securities, basic	638		794		729		1,420
Net income after participating securities, basic	29,521		36,955		33,691		66,078
Weighted-average common shares outstanding	159,795		162,911		159,713		162,848
Basic earnings per share	$	0.18	$	0.23	$	0.21	$	0.41


	Three Months Ended				Six Months Ended
(in thousands, except per share amounts)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023







Diluted earnings per share:
Net income	$	30,159	$	37,749	$	34,420	$	67,498
Less: Net income attributable to participating securities, diluted	120		708		138		1,267
Net income after participating securities, diluted	$	30,039	$	37,041	$	34,282	$	66,231
Weighted-average common shares outstanding	159,795		162,911		159,713		162,848
Dilutive effect of share-based awards	970		3,977		970		4,034
Weighted-average common shares outstanding, as adjusted	160,765		166,888		160,683		166,882
Diluted earnings per share	$	0.18	$	0.22	$	0.21	$	0.40

Driven Brands Holdings Inc. [DRVN] Filings
10-Q	[2024-08-08]
10-Q	[2024-05-08]
10-K	[2024-02-28]
10-Q	[2023-11-09]
10-Q	[2023-08-09]
10-Q	[2023-05-09]
10-K	[2023-03-01]
10-Q	[2022-11-04]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-03-18]
10-Q	[2021-11-09]
10-Q	[2021-08-09]
S-1	[2021-08-02]
10-Q	[2021-05-11]
10-K	[2021-03-24]
S-1	[2020-12-22]